Energy experts say fuel subsidy should go

The Government’s fuel subsidy has already crossed $3 billion with just under three months left for the 2011/2012 fiscal year to elapse, said Raymond Franco, manager of the Government-appointed CNG Task Force. In a telephone interview on Tuesday, Franco told the Business Guardian the deficit is expected to cross the $4 billion mark again this year, even though there has been a reduction in the amount of leakage due to the illegal sale of diesel fuel.  Franco said the level of the subsidy is as a result of continued strong prices for crude oil on the international market. It is perhaps this reality and faced with another deficit budget in 2012/2013 that Finance Minister Larry Howai this week indicated the Government will have to review the level of subsidies it is providing in the economy, including the growing fuel subsidy. Several economists and leaders in the energy sector the Business Guardian spoke to agree the fuel subsidy, as presently constituted, cannot continue and the Government will have to find a way to reduce its burden on the Treasury. There is also consensus weaning the population off cheap liquid fuel must be done over time and that the Finance Minister should not shock the economy by suddenly ending the support. To do so, they argue, would be to unfairly expose the most vulnerable in society.

 

 

Economist Dr Dhaneshwar Mahabir, who was one of the contenders for the post of Governor of the Central Bank, said the Minister of Finance has to deal with subsidies in general because he cannot afford to continue running deficit budgets in the context of the economy not growing to give him additional revenues. “There is a $4 billion fuel subsidy, but there are also large subsidies at the Water and Sewerage Authority and other State corporations. How the fuel subsidy has to been seen is in the context of the public debt and the fact that we cannot continue to run deficits without growth. “I, for instance, would like to know what the state of the public debt is now and what is the minister doing about it? The economy is not growing at a sufficient pace and the Minister of Finance has to cut expenses and look carefully at where he is spending his money,” Mahabir told the BG. Former Finance Winston Dookeran presented the two largest budgets in the history of T&T—$49 billion in 2010, and $50 billion in 2011—and ran up the largest deficits—$7.6 billion—without growth returning to the economy. Mahabir said the Government can reduce the deficit by phasing out the fuel subsidy, but warned Howai he had to do it in the medium term. Explaining that economic policy should always look at the medium- to long-term, Mahabir said before the subsidy is removed, the Government will have to ensure there is an adequate public transportation system in place. Mahabir said: “The people who will be impacted the most are those who are going to work. Most of the fuel burnt is done in taxis, buses, maxi-taxis and private vehicles as people make their way to work. Perhaps the Government could start by setting up dedicated bus lanes on the highway and also having buses move people, en masse, while providing parking areas along the highway.”

 

 

Mahabir said decentraliSation of government offices should be done in addition to moving people in efficient public transport. He said the Government should also move people away from the liquid fuels into the cleaner-burning CNG. Energy economist Gregory McGuire agrees the subsidy has to go. He said it was not a question if it should go , but when. He said it was costing the country too much money and was a major contributor to the inefficient use of energy. He told the BG: “T&T is the most inefficient user of energy in the Caribbean and it has to do with the fuel subsidy and the cheap cost of electricity. There is nothing like conservation in this country.” McGuire pointed to several countries, including Japan, that had few, if any subsidies, and whose population was among the richest in the world. While former energy minister Conrad Enill thinks the Minister of Finance may have to remove the subsidy, he said the subsidy was one way that people in an oil and gas economy can benefit from a country’s natural resources. McGuire rejects that notion, saying there was an issue of opportunity cost which is lost when there’s a subsidy. He made a case for the savings to be placed, in part, in the Heritage and Stabalisation Fund and the rest to be used in targeted projects in health, education and road construction. Both Enill and the Energy Chamber point to the solution of using CNG as an alternative fuel. Energy Chamber president Dr Thackwray Driver told the Business Guardian that its position remained: the subsidy had to go. Enill said the subsidy was only a problem in a high-priced environment. Even so he is convinced the solution was moving the transportation sub-sector to CNG.

 

 

He said: “When we did the studies, we realised that the transportation sub-sector was what needed to be targeted. So you had to look at the buses, taxis, maxi-taxis and so on. Once you take care of them and the most vulnerable in the country, those on fixed incomes, than you basically solve the problem.” Driver said while the chamber supported the move to CNG, it was concerned the country could move from subsiding liquid fuels to subsidising CNG. Energy consultant Tony Paul said he was concerned that sufficient research had not been done on exactly where the fuel is being used and how it is being used. He said the country suffers from a problem of making assumptions without proper data. Paul raised the extent of the diesel racket on final figures and said the racket happened for so many years, none of the relevant agencies picked up on it. Unless that is quantified, Paul argued, it would be difficult in his estimation to make wise decisions on the subsidy. All the experts the Business Guardian spoke to warned the Finance Minister he must slowly remove the subsidy. They say any rush to remove it will lead to turmoil as has been seen internationally. They concede that the Minister of Finance has no choice but to begin the process soon, but society’s most vulnerable must be taken into account and alternatives must be provided.